Top Super Funds: The Latest

October down, but asset allocation helps:

Highlights (Median Fund #)
The month of October 2005	– 1.6%
Financial year to 31 October 2005	3.70%
12 Months ended 31 October 2005	13.20%
Rolling 3 year return to 31 October 2005	10.6% pa
Rolling 5 year return to 31 October 2005	5.3% pa

# Median Fund refers to “balanced” option with exposure to growth style assets of
60–76%. More than 80% of Australians in our major super funds are invested
in their fund’s default investment option, which in most cases is the balanced
investment option. Returns are net of fees and tax.

The strong start to the financial year was temporarily halted in the month of October with the average super balanced investment option# losing 1.6% over the month. The interesting thing was the effect of asset allocation on the results, with those funds holding high levels of alternative assets being practically immune from the downturn of the equity markets. Westscheme and MTAA Super, which both have above-average exposure to alternative asset classes, recorded significantly better results than many other funds with losses capped at – 0.7% and – 0.9% respectively. The worst results for the month exceeded – 3.0%, which highlighted the effectiveness of alternatives as a buffer against equity markets.

Where the money is - Top 10 Three Year Returns (default options)

COMMENTARY

The continued gains in most asset classes stopped abruptly in October with only cash in positive territory. Most particularly Australian shares suffered (down a net 3.7%) for the month of October, contributing to an average decrease for superannuation balanced options of – 1.6%, which, whilst relatively high, did nothing to offset the strong start to the year with an average net
increase over the first four months of the financial year of 3.7% for most Australians.

Looking at the past three years' performance, which eliminates much of the poor 2001-02 and 2002-03 financial years, leaves the average balanced option investor with a return of some 10.6% per annum, far in excess of underlying inflation. For those
fortunate enough to have selected Australian shares as their option, returns for the three years have averaged 17.6% after all fees and tax.

The shorter term numbers dropped slightly in October with the average one-year balanced option performance now at 13.2% (highest MTAA Super at 19.55%). Australian share options remain also remain strong over the 12 months, with an
average return of 21.1% (highest Westscheme at 24.1%). Longer-term returns, however, continue to remain static with the average five-year performance of balanced investment options at a more subdued 5.3% pa, now slightly below the long-term
objectives of these types of funds of CPI 3.5%.

SuperRatings’ Managing Director, Jeff Bresnahan, says: “The long-term numbers are the critical measure. Despite recent strong gains for most Australians, the five-year numbers are still below most funds’ objectives. However, if modest gains
can be maintained over the next two years we will start to see most funds’ long-term objectives being exceeded. There remain, however, some serial offenders in terms of underperformance and they will need to hope that markets fall in their favour.”

“What is clear is that there is a growing allocation by most funds to alternative asset classes, such as infrastructure and private equity. Whilst the industry average allocation sits around 6%, this figure continues to rise and for many funds now exceeds 10%”.

“Another interesting thing is the emergence of Zurich whose performance has improved markedly over the past 12 months to now sit third over the period. Their performance in just about every asset class has been top-quartile”.

In other investment options the financial year to date results have covered a wide range:

FOUR-MONTH PERIOD 1 JULY TO 31 OCTOBER 2005
Growth Options SuperRatings Index	4.40%
Australian Share Options SuperRatings Index	5.30%
International Share Options SuperRatings Index	5.50%
Property Options SuperRatings Index	1.70%
Capital Stable Options SuperRatings Index	2.00%
Cash Options SuperRatings Index	1.60%

Other key results in respect of the rolling five year results to 31 October 2005 include:

As can be seen from the above the choice of a particular investment option is critical to all Australians’ financial future. So aside from the
challenge of choosing an appropriate fund Australians are then faced with the choice of which option to choose within such a fund. This probably explains why more than four out of every five Australians currently sit in their fund’s default option, which in most cases is the “Balanced” option with some 70% of assets exposed to growth style assets and the remaining 30% in defensive style assets.

Disclaimer: The information used in compiling SuperRatings’ Investment Survey comes from sources considered reliable. It is not guaranteed to be accurate or complete. The purpose of the Investment Survey is not to influence a consumer’s decision in relation to a particular financial product/s or an interest in a particular product/s. SuperRatings does not provide financial product advice for the purposes of the Corporations Act 2001. Consumers should obtain independent legal or financial advice before making any financial decision.